City paying millions to keep Jacksonville garages afloat

Sunday

Jacksonville has lent $16 million in five years to subsidize a parking company it picked to own and run three downtown garages.

Now, the city could spend $50 million buying its way out of the deal.

That would leave City Hall owning and operating garages it never wanted and hoping that spending big money up front can cut taxpayers' losses - eventually.

"We have a tough choice ahead of us," City Councilman Greg Anderson said as members weighed their options. "... Are we supposed to be in the parking garage business or not?"

Either choice would cost the city millions next year.

"In the current deal we've got, the city is going to have to keep providing loans to the developer to the tune of $4 million a year," Kyle Billy, a principal auditor for the City Council, told council Finance Committee members this month.

Taking the other route, he said, "the city walks away with the garages ... and having to spend millions of dollars a year and actually taking a loss operating them. But not as big a loss as in the current contract."

Although council auditors have suggested a buyout before, Mayor Alvin Brown's financial team won't cast its verdict until after Tuesday's council vote on the 2012 budget.

The issue can hold a while - but the price won't.

"It looks like you'd spend an extra $4 million if you don't buy them out by Dec. 31," Billy warned.

The city already has spent millions more than expected for Metropolitan Parking Solutions LLC to operate garages near the sports complex, the arena and the new Duval County Courthouse.

That's not really the company's fault, said Metropolitan Parking Solutions President Ken Krismanth.

"There's been no courthouse. There's been a garage put in place downtown primarily to serve that venue," Krismanth said.

"If there's no courthouse, we'll keep managing as best as we can. But that's a huge driver" of business.

Auditors' warning

The city approved a deal with Metropolitan in 2004, while new buildings from the Better Jacksonville Plan were popping up across downtown. Headed by businessmen from another firm, Signet Development, Metropolitan was one of five companies that answered a city notice for proposals to build and run new garages.

To have parking for sports and music fans - and eventually for courthouse visitors - the city helped Metropolitan issue $50 million in bonds for construction, with the company solely responsible for repaying investors who bought them. The company also brought $3 million of its own to the table and the city held notes on $5.7 million spent buying the sites.

The city agreed that if Metropolitan couldn't break even once the garages opened, it would lend enough to cover the company's losses, along with a $240,000 yearly return on the company's investment. The loans would be repaid with interest once the garages turned a profit.

The company has collected nine loans from the city since 2007, ranging from $859,000 to $2.3 million, usually through payments in May and September.

This summer the company requested an additional loan of $2.3 million to cover losses from the first half of 2011.

With the company still obligated to pay off bonds that will last more than 20 years, auditors say the city should expect to lend millions year after year.

"It's conceivable that one day the city will have $100 million loaned to this developer," Billy warned council Finance Committee members.

Courthouse boost

That's ridiculous, answered Krismanth, who said the company expects to earn an extra $2.5 million to $2.7 million the first year the courthouse is open.

"The largest driver for the courthouse garage will be the courthouse," he said. "We all know that [revenue] will improve."

The courthouse is expected to open next year and make the Metropolitan garage on Pearl Street more profitable than either of the others, drawing in court employees with monthly leases and people paying by the hour because they have a case before a judge. That's more traffic, day after day, than anyone should expect at garages built to serve concert crowds and sports fans who come weekly or even a few times a week.

Metropolitan will still need some help, and the city realized that, Krismanth said. He said that will end as downtown develops, but it will take time.

Critics argue the city's deal was too generous.

"The developer gets an 8 percent return on their equity. ... And for every dollar they lose, we give it back to them," Councilman John Crescimbeni said.

"I'm a little fuzzy here, but where's the incentive for them to make money?"

An even bigger question is whether the city would really save by replacing Metropolitan.

To do that, the company's contract says the city would be responsible for repaying the bond investors who financed the construction and returning the $3 million Metropolitan put into the project.

Jacksonville can pay for the buyout by issuing a new bond for $50.5 million, city Treasurer Michael Givens said this month. A new bond would carry lower interest costs and slightly decrease the $3.8 million in yearly debt service payments that have to be covered now.

Council skeptical

A cost sheet circulated to council members estimates the city can save $937,000 a year through a combination of lower operating expenses, not having to pay investment returns to Metropolitan and having lower debt service.

Council members have been skeptical, asking for details about the cost of issuing new bonds and how the cheaper operating costs were figured.

Krismanth is more pointed.

"We have no idea where they came up with their numbers," he said. "They don't make any sense."

He said the city's estimated operating cost of $643,000 yearly for all three venues, not counting taxes, isn't much more than the city spends now running the single garage it owns on Water Street. There also aren't enough specifics in the estimates to see how the numbers were figured, he said.

He argued the city can't count on the same income as Metropolitan, saying that city rules don't allow its public parking division to offer bulk rates, promotional discounts and other deals that help attract the customers that park with Metropolitan now. Krismanth said downtown's parking business has suffered recently, but his company has outperformed its competitors.

The Mayor's Office isn't ready to sign off on taking over the garages either.

Chief Financial Officer Ronnie Belton said his staff has been focused on questions surrounding the 2012 budget that the council will finalize Tuesday, and he'll look closer at the garage costs after next week.

"I heard them. We're looking at it. We're going to make some decision," he said about the buyout proposal. "This won't be addressed until after Tuesday."

Even if a buyout makes sense financially, it would leave the city managing a set of properties that an earlier council and mayor argued was best left to the private sector.

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